United Airways Case Study

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UNITED AIRWAYS CASE STUDY

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Executive summary

The aviation industry has always been faced by myriads of different problems. Some of these

problems include profitability issues, lack of product differentiation, and poor customer

service among others. is essay is going to discuss and analyse some of the problems that are

affecting United Airline. Of particular importance to us are the effects of the “United breaks

guitar video.” Dangerous negative publicity came from the YouTube videos that were made

by the Sons of Maxwell band on how they have such a poor customer’s service. The video

amounts to a parody of an ad. The song had an aim of demonstrating the negative side of the

airline. It revealed their poor customer service by the mere fact that the video have received

more than 10 million views currently, the name of the company have been tarnished

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Issues

One of the problems that are affecting the firm is low profitability. The company seems to be

having very little profits. The profits of the company are also not very stable. The company’s

profit for the last four years i.e. 2010,2011,2012,2013 are $ 253.0 million, $ 840.0 million, $

-723.0 , $ 571.0

million respectfully

. This shows that the earnings of the company are very

volatile and affected easily by external shocks in the industry.

The second problem competition is high competition The Company just like any other firm in

the aviation industry have been having hard dealing with the competition from the low cost

operators in the industry. Some of the low-cost operators include the Southwest Airlines and

Ryanair. These firms provide flights at very low prices. The aviation industry lacks products

differentiation. Therefore, it is hard for customers to choose one brand be loyal. Instead,

customers look at the price rather than anything else. At the same time, flights have an elastic

demand. This is to mean that a small change in the pricing of flights will result to a very large

change in the number of tickets sold by a given company. It is due to this reason that the

airlines are having a night mare dealing with these low cost firms. United Air is also having

the same problems just like the rest of the industry.

Another problem that is facing the company is poor quality services poor customer service.

The company has reduced the quality of its services and the customer service too. In order to

save on costs and thus maximize the dwindling profits, this company just like its pees in the

industry has been removing some of the services that are deemed not to be so necessary. This

has caused the customers to be unsatisfied. The poor service can be observed by the way that

the company handle the guitars of the Dave Carroll, a musician from Halifax, NS who is a

Nicola Clark, “Airline Industry Profits Heading For Decline In 2008”, International Herald Tribune, (2007),

20.

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member of the band called the Sons of Maxwell

. The cargo handler was just throwing the

customers luggage without any order. The staff did not stop even for a while to check the

type of the cargo that they were handling. Expensive charge like guitars should have been

handled with much care. on trying to obtain a refund for a broken guitar or at least indemnify

the customer the cost that he incurred in repairing the guitar, the company kept on taking him

round and round from one company agent or official to the other.it is as if the company was

trying to frustrate the musician so that he could give up and thus save the cost of the refund.

This is a perfect case of poor customer service

The company at the same time is suffering from poor publicity. The company is associated

with the terrorist’s activities of the September 11. In the year 1999 the month of September,

two planes that were owned by the United Airlines were hijacked and used in the famous

twin towers bombing

. By the mare fact that the terrorist used the company’s planes, the

company will always have that negative association with the terrible incidence. However,

more dangerous negative publicity comes from the YouTube videos that were made by the

Sons of Maxwell band on how they have such a poor customer’s service. The video amounts

to a parody of an ad

. The song had an aim of demonstrating the negative side of the airline.

It revealed their poor customer service by the mere fact that the video have received more

than 10 million views currently, the name of the company have been tarnished. The song

depicts the cargo handlers of the company throwing guitars around and eventually dropping

them. This causes the guitar of one of the artists to break. The chorus of the song ends with

the phrase “United breaks guitars”. At the same time the video had remained on top of many

Boon L. Lee, Clevo Wilson and Carl A Pasurka Jr, “The Good, The Bad And The Efficient: Productivity,

Efficiency And Technical Change In The Airline Industry, 2004: 2008”, QUT Business School, (2013), 29

Ibid, 20

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music charts. At the same time, this video caused the company capitalisation at the stock

market to fall by $ 180 million

Causes

There are various causes of the above problems. It is important to identify the causes of the

problem so that solutions can be found. The following are the factors that have contributed to

the problems that are identified in above.

The cause of low profitability of the company is caused by the poor economic conditions of

the global economy. Such factors include the poor performance of the global economy in

terms of growth

. The developed countries where the airline has major operations in are also

experiencing recession. This has caused the revenues of the company to decline. At the same

time, costs have been on the rise. The cost of fuel has been increasing steadily due to the rise

in the prices of oil in the world. Increase in the prices of inputs coupled with the slow or

negative growth in revenues is eating into the company’s profits margins.

The cause of not keeping up with competition is lack of innovation. The company is facing a

lot of competition from the low cost operators in the industry. There are other airlines

however that is able to beat the stiff completion. The reason that they have been in a position

to do this is due to the innovativeness of the firms’ employees. Some have come up with

viable ways of keeping the costs of their operations down, therefore being in a position to

charge low prices which attract more customers. Others have come up with creative ways of

maintaining their most loyal customers.

Finally the other cause of the company’s poor publicity and poor customer service is its poor

morale and irresponsibility’s of the company’s staff. The reason that the company is having

Ricardo Machado and Colin Diggines, Customer Service, 1st ed. (Lansdowne, South Africa: Juta, 2012), 204.

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such a poor customer service and bad publicity is because the staffs of the company are not

doing their job as they ought to. The company’s customers have been having very bad

experiences when they are travelling with the airline. One of such is the Sons of Maxwell

band. The country music band had to witness a rather disturbing event as their high value

guitars were being tosses anyhow and mishandled

. This caused one of the guitars to break.

The cargo handlers of the company, just as the video of the song “United breaks guitars”

showed that that the staff were having a very low morale and seemed to be very irresponsible

at the same time. All the employees approached by the musician who had his guitar broken

did not even care to listen to what kind of complaint he had. They just kept on pointing

fingers to other people and trying to evade the responsibility of repairing the guitar.

Decision criteria

The decision criteria o be used in choosing the best alternative are as follows

 The decision should not result to increase in cost but rather should result in cost

reduction.

 the decision taken should be ethical

. Long term and short term alternative

In order to solve the above problem, the some steps must be taken by the organisations

management. These solutions will help solve both the internal and the external problems that

are facing the firm.

So as to address the issue of low profitability, the firm should adopt cost cutting measures.

This is the surest way for firms that deal with commodity like products. By lowering their

costs, the firm will attract more customers. However, this might hurt the employees due to

Kyoung Won Park, “Labor Turmoil And Service Quality: Evidence From The US Airline Industry, 1987-

2008”, (2010), 24.

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the risks of layoffs. Another way of solving this is to market the firm’s products aggressively.

This will increase the revenues of the organisation. However, this has the possibility of the

raising the firms costs.

In order to solve the threat posed by the external environment such as the stiff competition ,

the firm might consider two options

. One of the options is to convert into a low cost carrier.

This action has the advantage of enabling the firm compete easily with others due to the

competitive prices that it will be offering. It will also be in a position to deal with recession

since the customers who are affected by this condition will be in a position to afford the

cheap prices. To this however has the drawback of making the company loose some of the

customers that are keener on comfort or flexibility. Another solution to this problem is

aggressive marketing a brand creation. This will entail creating customers loyalty and thus

maintaining or growing the market share. However, to do this will take a considerable long

period of time to accomplish.

In order to deal with the internal problem of poor customer service and poor publicity, the

company can take two actions. One of them is train their employees on good customer care

services. This will enable it reduce the cases of customer dissatisfaction.

However, this

comes at accost since training employees is quite expensive. On the other hand the company

can undertake corrective advertisement. This will enable the company reduce the impact of

the negative impact of the “United breaks Guitar” video

. This however will not address the

cause of the problem which is poor customer serve.

Charles E Schlumberger, “The Oil Price Spike Of 2008: The Result Of Speculation Or An Early Indicator Of

A Major And Growing Future Challenge To The Airline Industry?”, Annals Of Air And Space Law 34, iss 1

(2009): 111-150.

Ken Welsh, “Happy About Customer Service?", 1st ed. (Cupertion, CA: HappyAbout.info, 2008), 27.

Rokes, Beverly. Customer Service. 1st ed. Cincinnati: South-Western/Thomson Learning, (2001).

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Solutions

To handle this, the company needs to reduce its costs to deal with the problem of low

profitability. It can also convert its operations and become a low cost operator to solve the

issue of high completion. To solve the issue of poor customer service and poor publicity the

company needs to train their employees on this.

Implementation and Implications

In order to train the employees on good customer care services, the firm needs to hire or

outsource a specialist who will be in a position to train the employees. This is done e best

option since it is cheaper and the firm will benefit from the experience and the skills of the

expert.

To deal with the issue of external threats, the best option is to convert into a low cost carrier.

This can be by first hiring a consultant who will advise the firm on the best way to go about

it. At the same time, the firm should consider rebranding so as to position it as a low cost

carrier.

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Bibliography

Clark, Nicola. “Airline Industry Profits Heading For Decline In 2008”. International Herald

Tribune, 2007.

Lee, Boon L, Clevo Wilson, and Carl A Pasurka Jr. “The Good, The Bad And The Efficient:

Productivity, Efficiency And Technical Change In The Airline Industry, 2004: 2008”.

QUT Business School, 2013.

Machado, Ricardo, and Colin Diggines. Customer Service. 1st ed. Lansdowne, South Africa:

Juta, 2012.

Park, Kyoung Won. “Labor Turmoil And Service Quality: Evidence From The US Airline

Industry, 1987-2008”, 2010.

Rokes, Beverly. Customer Service. 1st ed. Cincinnati: South-Western/Thomson Learning,

2001.

Schlumberger, Charles E. “The Oil Price Spike Of 2008: The Result Of Speculation Or An

Early Indicator Of A Major And Growing Future Challenge To The Airline

Industry?”. Annals Of Air And Space Law 34, iss 1 (2009): 111-150.

Welsh, Ken. Happy About Customer Service? 1st ed. Cupertion, CA: HappyAbout.info,

2008.

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